If prices were to continue to drop, if bigger developers went under and China’s property sector collapsed, this isn’t necessarily the doomsday scenario many have feared, according to the independent analyst Andy Xie.
Economists worry that a stall in property investment in China would ripple through the economy and leave millions unemployed as companies that cater to the industry feel the impact. Households would also curb their expenditures. Yet, the meteoric rise in prices during the last decade didn’t encourage Chinese homeowners to open up their wallets. Xie says. Why then, he asks, would a collapse cause a great contraction in consumer spending?
“China’s middle class is just coming out. College grads with five years experience and a relatively high salary still can’t afford property,” Xie said. Outrageously high prices have put normal Chinese under great pressure and have actually hurt consumption; rock-bottom prices caused by a housing collapse would stimulate buying by freeing up more of people’s incomes.
An implosion isn’t the preferable form of correction in the Chinese housing market. But one way or another, prices must come down.
Read more here…
Dr Xie is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States. He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Prior to that he spent two years with Macquarie Bank in Singapore, where he was an associate director in corporate finance. He also spent five years as an economist with the World Bank.